Abstract
In this paper, a mathematical model for the single-vendor single-buyer problem under VMI configuration is considered. In particular, the contractual agreement between the vendor and buyer is explicitly included. This contract includes an upper limit on the buyer's inventory level such that the vendor is penalised for items exceeding this limit. The purpose of this upper bound is to protect the buyer against excessive inventory. An algorithm is devised to solve the proposed model. Moreover, sensitivity analysis is conducted to show the effect of key parameters of the model on the optimal solution.
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